Collaboration, joint ventures and trading
Collaborations and entrepreneurial enterprises in the schools and academies sector are certainly not new. That said, the current landscape and future trajectory combined with the scale of school trusts means that these collaborations, joint ventures and trading enterprises are becoming more complex and significant in scale.
We have supported schools for well over 10 years with options appraisals, the subsequent design of their formal collaboration, joint venture or trading company and then the delivery of their vision. Over the years we have helped Teaching School Alliances and the Teaching School Hubs, school collaboration companies, spin-out companies from local authorities as well as school trusts put in place a wide range of solutions. Our expert team is particularly adept with working with groups of school trusts to help them cut through the complexity of the corporate and contractual structures, the regularity regime together with charity and company law and implement solutions that meet as well as enhance their vision in a straightforward way.
Trading Subsidiaries FAQs
- If the proposed activity falls outside the Objects of the academy trust (as set in its Articles of Association). There is some nuance here regarding ancillary and non-primary purpose trading, but often academy trusts will be more comfortable placing non-core commercial activities outside of the academy framework
- If the activity is such that for financial or reputational reasons it would be advantageous to ring fence the risk of carrying them out in a separate company
- Tax reasons.
- Upfront and operating costs: there will invariably be set-up costs connected with professional services to consider, as well as the ongoing costs associated with administrating the subsidiary’s day to day activities, such as resourcing central team staff and of course the annual audit fees.
- Start-up capital: the initial introduction of capital into the new trading subsidiary by the parent Trust needs to be carefully considered in the context of the requirements of the Academy Trust Handbook (Handbook) as well as the Trust’s Funding Agreement. You may also want advice as to whether ESFA consent will be needed.
- Relationship at arm’s length: it is important to bear in mind that the parent Trust must not subsidise the activities of its subsidiary and where services are provided due consideration must be charged. Consequently, it is advisable for a robust services agreement (or similar) to be put in place to properly document any use of the Trust’s resources by its subsidiary (e.g., office space, staff, back-office support).
- Governance: the Charity Commission guidance for trading subsidiaries highlights the importance of maintaining a degree of independence between the trustees/directors of both companies thus allowing for proper decisions to be made unaffected by any conflicts of interest. Careful thought should therefore be given to the membership of the subsidiary’s board and many Trusts may find it helpful to put in place a governance agreement between the two companies that clearly describes the decisions reserved to each layer of governance.
- Commercial activities: if the trading subsidiary’s activities involve the provision of goods and services to third parties it is important that suitable terms and conditions of supply/sale are prepared to adequately protect the subsidiary’s position.
An accountant or tax expert’s advice should be sought to determine whether the subsidiary will form part of the same VAT group as the parent Trust. Certain activities such as the provision of sport and physical education will require further specialist advice.
DfE: Whilst the DfE have acknowledged the useful application of trading subsidiaries there is little in the way of specific guidance set out in the Handbook. This lack of information has historically made trusts very conservative in the way they operate their subsidiaries. However, recent changes to the Accounts Directions have made the situation somewhat clearer in terms of the regulatory reach of the DfE and applicability of the Handbook.
Nevertheless, trusts should be mindful of the more general restrictions in the Handbook that can impact on a trust’s relationship with its subsidiary companies. These restrictions can throw up a number of questions relating to issues such as: borrowing, novel, contentious or repercussive activities, related party transactions, disposal of assets and the provision of guarantees many of which will need to be considered (and ESFA permission sought) before the subsidiary can commence trading.
Charity Commission: trusts need to remain conscious of their wider obligations under charitable law with regard to the operation of any subsidiary company. The Charities Commission has published extensive guidance on charities and trading activities in the publication ‘Trustees, trading and tax: how charities may lawfully trade (CC35)’ which is a helpful point of reference.
Browne Jacobson has been advising trusts on joint ventures and the development of suitable structures to deliver strategies for trusts looking to increase revenue through the use of trading subsidiaries for well over 10 years. We would be happy to discuss options with interested trusts. We have acted for trusts looking to set up simple arrangements for the operation of nurseries through to complex trading companies with multi-million pound turnovers.
Outwood Grange Academies Trust
Supporting a consortium of leading school trusts - Outwood Grange Academies Trust, Harris Federation, Oasis Community Learning and Star Academies – on their successful bid for the DfE's Institute of Teaching tender with the contract providing over £120m of funding.
Trinity MAT and White Rose Education
Advising this already successful subsidiary on their applicability of the complex and evolving regulatory landscape on their ambitious growth plans as well as codifying the relationship between the parent MAT and the subsidiary to deliver on the twin goals of ensuring robust group governance whilst facilitating delivery of an ambitious and innovative business plan.
Greenwood Academies Trust
Working with Greenwood Academies Trust on the commercialisation and development of their innovative cloud-powered EdTech solution for 3-19 education providers through a its subsidiary company, Our Learning Cloud.
“Browne Jacobson have remained at our side as our trusted advisers throughout the entire bidding process - providing sound legal, contract and governance advice. Finally, having been awarded the National Institute of Teaching contract, they continue to support us as we establish and mobilise this new organisation.”
"Browne Jacobson’s sector knowledge and pragmatic advice has been key in allowing us to progress with our exciting growth plans"
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